NOTE 12

INCOME TAXES

The components of (loss) income before income tax expense by jurisdiction for continuing operations for the years ended December 31, consisted of the following (in thousands):

SCHEDULE OF INCOME (LOSS) BEFORE INCOME TAX (BENEFIT) EXPENSE 

The components of current and deferred federal and state income tax expense (benefit) for continuing operations for the years ended December 31, consisted of the following (in thousands):

SCHEDULE OF COMPONENTS OF INCOME TAX (BENEFIT) EXPENSE 

An overall reconciliation between the expected tax expense using the federal statutory rate of 21% for each of the years ended 2024 and 2023 and the expense for income taxes from continuing operations as reported in the accompanying Consolidated Statement of Operations is provided below (in thousands).

SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION 

The global intangible low-taxed income (“GILTI”) provisions under the Tax Cuts and Jobs Act of 2017 (the “TCJA”) require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company has elected to account for GILTI tax in the period in which it is incurred and therefore, has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the years ended December 31, 2024 and 2023. As the Canada and United Kingdom foreign subsidiaries are in a combined loss position for 2024, no GILTI inclusion is expected for these entities for the current year.

The Company had temporary differences and net operating loss carry forwards from both our continuing and discontinued operations, which gave rise to deferred tax assets as of December 31, 2023. No deferred tax assets remained as of December 31, 2024, as the Company provided a full valuation allowance against its U.S. federal and state deferred tax assets in 2024. Table below reflects deferred tax asset balances as of December 31, 2024, and 2023 (in thousands):

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 

The Company records a valuation allowance against its net deferred tax asset to the extent it determines it is more likely than not that such asset will not be realized in the future. The Company regularly evaluates the probability that its deferred tax assets will be realized and determines whether valuation allowances or adjustments thereto are needed. This determination involves judgement and the use of estimates and assumptions, including expectations of future taxable income and tax planning strategies. The Company applies judgment to consider the relative impact of negative and positive evidence, and the weight given to negative and positive evidence is commensurate with the extent to which such evidence can be objectively verified. Based on the Company’s evaluation of all available positive and negative evidence, and with greater weight placed on the objectively verifiable evidence which primarily included the Company’s three-year cumulative losses, the Company determined that it is more likely than not that the Company’s net U.S. deferred tax asset will not be realized. As a result, in 2024, the Company provided a full valuation allowance against its U.S. federal and state deferred tax assets and recorded an income tax expense in the amount of approximately $8,194,000. The Company continues to maintain a valuation allowance against foreign tax attributes that may not be realized.

The Company has estimated net operating loss carryforwards (“NOLs”) for federal and state income tax purposes of approximately $33,470,000 and $81,775,000, respectively, as of December 31, 2024. These NOLs can be carried forward and applied against future taxable income, if any, and expire in various amounts starting in 2024. All of our federal NOLs were generated after December 31, 2017 and thus do not expire.

The Company accounts for uncertainties in income tax pursuant to ASC 740. A reconciliation of the beginning and ending amount of our unrecognized tax expense is summarized as follows (in thousands):

SCHEDULE OF RECOGNIZED TAX EXPENSES 

The Company does not include interest and penalties related to income taxes, including uncertain tax positions, within the provision for income taxes due to immateriality.

The tax years 2021 through 2023 remain open to examination by taxing authorities in the jurisdictions in which the Company operates.

The Company had $0 and $44,000 federal income tax payable for the years ended December 31, 2024, and 2023, respectively.

Beginning in 2022, the TCJA amended Section 174 to eliminate current-year deductibility of research and experimentation (“R&E”) expenditures and software development costs (collectively, “R&E expenditures”) and instead require taxpayers to charge their R&E expenditures to a capital account amortized over five years (15 years for expenditures attributable to R&E activity performed outside the United States). For each tax years 2024 and 2023, the Company has capitalized $2,240,000 of research and development expenses. While Management believes the estimate for 2024 to be materially accurate, the Company plans to complete a formal IRC Section 174 analysis in advance of filing the tax return for the year ended December 31, 2024.